How Does This End? And What Are the Likely Consequences?

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Written by Mark Hicken Mark Hicken

Category: Latest News Latest News

Published: 26 March 2020 26 March 2020

This is a follow-up to my earlier post. As noted there, these predictions are obviously speculative.

Current Restrictions

As discussed previously, the current societal restrictions (lock-downs, business closures, social distancing, event size limits) have produced dramatic effects for the wine industry:

• A collapse in sales to restaurants/bars/hotels, which entire sector is bearing the full brunt of the fight against the pandemic.
• An increase in sales to the retail sector due to consumers switching to wine consumption at home.
• An increase in online (direct to consumer) sales due to consumer preferences for product delivered to homes.
• The closure of winery tasting rooms, although many on-site stores are still operating for online sales and "curb-side" pickup.
• The closure of restaurants located at wineries. 
• The cancellation of traditional promotional events such as winemaker dinners and larger tasting events, both in respect of trade and consumer events.
• The cancellation of on-site winery events including consumer-focused ones (such as wine club release parties) and social events (such as weddings).

The Future of the Restrictions

The strategy of most governments is to control the number of infections (and hospitalizations) through the use of the restrictions such that the medical care system is not overwhelmed (i.e. 'flattening the curve'). As noted previously, in China it took 3 months of very significant restrictions to 'turn things around' (or 'flatten the curve' sufficiently to ease the restrictions). The longer term goal would be a gradual easing of the restrictions in North America, including BC. However, scientists are warning that the relaxation of restrictions too quickly, could cause a 'second wave' of infections and problems creating a recurring cycle of problems and re-imposed restrictions. As such, and barring a miracle cure/vaccine or a radical change in government policy, it appears that the most likely outcome is a continuance of some level of restrictions for at least 2-3 months, with a possible gradual easing over a longer number of months (Bill Gates has predicted a shutdown of 6-10 weeks). What are the implications of this for the wine sector?

• Restrictions on hospitality businesses might continue for many months albeit perhaps with some easing. As a result, sales to this sector may continue to be negatively affected.
• Sales to the retail sector would likely stay strong, although the surge may level off somewhat.
• Online DTC sales would likely stay strong.
• Winery tasting rooms may not be able to re-open or may have delayed openings. The traditional tasting room model may not be allowed ... rather, they might be restricted to appointments or other models that could incorporate limits on the number of customers present at any one time. Winery 'tour bus' models may not be possible.
• Winery restaurants may not be able to re-open, or could be subject to restrictions.
• Traditional promotional events may not be possible or may be restricted to smaller numbers.
• On-site winery events may not be possible or may be restricted to smaller numbers.

A second, potentially more optimistic scenario, is that mass testing and increased protection of vulnerable groups (following a successful effort to 'flatten the curve') results in better and more targeted management of any ongoing cases and outbreaks. This strategy seems to have worked in some other countries, such as South Korea and Singapore, which have not had to impose such significant broad societal restrictions. Nevertheless, these countries have relied on monitoring and compliance programs which are more intrusive than anything seen to date in North America (e.g. GPS or technology based location reporting to enforce self-isolation or quarantine). This approach could conceivably allow for a faster relaxation of the restrictions - and a faster return to 'normality'.

Your Sales Channel Mix

Wineries may need to review their past sales channel mix and actively re-calibrate it. If a high percentage of sales was to the hospitality sector (including an on-site restaurant), you may need to find other channels for most of this wine. Similarly, if a high percentage of sales came from "walk-in" tasting room traffic, you may need to re-think. This is of obvious concern if the restrictions continue into the summer tasting-room 'high season'.

Planning Ahead

Here are a few ideas:

• Treat your existing customer lists as the "holy grail" (you were doing this before, right?). You may be able to increase sales to your loyal clientele through promotions and/or effective direct marketing. For example, one winery that I visited recently sent me both a hand-written thank you note and a corkscrew in the mail a few weeks after I visited.
• If you don't have a wine club, think about starting one.
• Upgrade your DTC capabilities. If necessary, re-vamp your web site and online sales processes. If you haven't added free shipping, do so now.
• Create a 'Plan B' for your tasting room. If it can re-open, could you do 'appointment only'? Could you make it work with restricted numbers?
• Create a 'Plan B' if you have a restaurant. If it can re-open, could you do 'take-out only'? Could you do 'picnic packs'?
• Think about what alternate marketing you would do if dinners and tasting events do not resume. Can you work with your existing retailers? Can you ramp up online marketing? Think about wine clubs. Think about joint marketing initiatives.
• Think about re-scheduling winery events. Adopt a flexible cancellation policy.
• Cross your fingers ... and hope that things get under control sooner rather than later.   

Business & Legal Implications for the BC Wine Industry in a Changed World

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Written by Mark Hicken Mark Hicken

Category: Latest News Latest News

Published: 19 March 2020 19 March 2020

The world is dramatically different today than it was 10 days ago. The new world is one of closed businesses, canceled events, work from home, serious hygiene and social distancing. Our collective health is the prime concern, as it must be. Governments and businesses are working round the clock to implement public health measures that will hopefully minimize the worst scenarios. Because we are in uncharted waters, however, we simply don't know what will actually happen ... and any look toward the future must be largely speculative. Nevertheless, I have attempted to catalogue some thoughts below regarding the business and legal implications of this new world for the wine industry. I hope that these are helpful.  

Time Frame

How long will this last? We don't know. There are many differing estimates. However, news reports are currently indicating that it took China 3 months to "turn the corner" with severe restrictions. Barring a miracle cure or vaccine, the new world in North America will probably last at least that long and possibly much longer, since our restrictions are not as severe. In addition, public health experts are indicating that the maintenance of restrictions would likely be necessary in order to prevent a flare-up or resurgence, at least until a cure or vaccine is found. As a result, businesses, including those in the wine industry, must prepare and plan for the new world for the foreseeable future.

Consumption

Generally, people continue to consume alcohol during stressful or uncertain times, although they may not do so in the same ways or to the same extent as they did previously. The experience of Prohibition shows that liquor consumption will continue even in the face of blanket restrictions to stop it. As a result, liquor manufacturers including wineries may be in a somewhat better position than other business sectors. Nevertheless, the consumption patterns have already changed and will stay that way for some time as customers switch en masse from on-premise (restaurant/bar/hotel) consumption to off-premise consumption (home consumption from retailers).

Production

Hopefully, for most wineries, production will continue as normal. A welcome bit of good news was that the temporary foreign workers program will continue, although subject to self-isolation requirements (many wineries use this program for vineyard labour). There may be general shortages of skilled labour however.

Distribution

The hospitality sector is experiencing a grave crisis. As a result of both mandatory measures and changed customer behaviour, most of these businesses are either closed or operating at tremendously reduced capacity (e.g. take out only). Their situation is dire. Unfortunately, this sector is likely to continue to experience the brunt of the negative effects and be at the front line for the duration. Wholesale winery sales to the hospitality sector will obviously go down dramatically. Hopefully, there will be a sufficient amount of fiscal and regulatory support for this sector so that it can survive. These are some of your best customers. Unfortunately, it seems certain that there will be many casualties. In contrast, the retail sector is already experiencing a large increase in sales. Wholesale winery sales to retailers will likely go up (although likely not enough to compensate for the downturn on the hospitality side). So far, the retail distribution supply chain continues to operate normally. This will be critically important in the weeks ahead.

Direct to Consumer (DTC)

Some jurisdictions have ordered winery tasting rooms to close while permitting DTC sales to continue either in-store or through e-commerce. While BC has not ordered tasting room closures, the current BC health orders would make it difficult to operate a normal tasting room environment (due to capacity and distance separation). Due to changes in consumer behaviour, opening is likely not desirable anyway and could potentially create legal liability if operated incorrectly (most BC wineries seem to have closed their tasting rooms). Current regulations continue to permit on-site sales (many wineries are offering curb-side pickup or loading for pre-paid orders) and e-commerce sales with delivery. Unfortunately, the post-Comeau regulatory environment continues to make it difficult to serve many out-of-province customers (see Shipping Update). It is likely wishful thinking to hope that the provincial governments will resolve this any time soon.

Marketing: Expand DTC & E-commerce

Many forms of traditional wine marketing are unfortunately on hold. BC's current restrictions make it impossible to hold traditional winemaker's dinners or to have large scale tasting events (e.g. sadly, Top Drop was just cancelled). 

Wineries may wish to consider an evaluation and expansion of their marketing efforts (perhaps using tasting room staff) through DTC efforts, e-commerce and wine clubs. The changed consumer landscape has created a large increase in retail deliveries and a desire for products delivered to home. Reaching out to existing consumer lists and ramping up on-line advertising as well as social media are viable options although wineries should obtain advice on the marketing restrictions that relate to social media (and other advertising) if they are not clear on what those are. The expansion of wine clubs is also an option. Traditional wine club models can be promoted, particularly with "% off" promotions and/or free shipping. Less traditional club models might also be considered including working with other wineries, wine writers, wine experts and/or retailers. These latter options can provide additional marketing opportunities although they are subject to regulatory constraints on their structure. It is important to get proper advice in order to stay on-side.

Additional thoughts on the broader economic implications of the new world are in this Wine Economist article (the link at the end to the Rabobank report may be instructive).

Everyone is hoping that this new world will not last ... and that events will be brought under control to restore some semblance of normality. When that eventually happens, we will all breathe a huge sigh of relief. This new world is one that none of us wanted. Let's work together to try and make it short-lived.  

AIDV Canada Launches: Conference Set for Feb 24th

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Written by Mark Hicken Mark Hicken

Category: Latest News Latest News

Published: 27 January 2020 27 January 2020

The Canadian chapter of the International Wine Law Association (Association Internationale des Juristes du Droit de la Vigne et du Vin or "AIDV") has now launched and announced its first ever national wine and liquor law conference, to be held in Vancouver on February 24th in conjunction with the Vancouver International Wine Festival.

AIDV Canada's mission is to develop knowledge of and to advance wine law and policy across Canada. Those interested in joining AIDV Canada can sign up here (membership is $225 CAD per year which includes membership in AIDV International). Membership in the international section includes invitations to the annual international conference, which is next scheduled for fall 2020 in Madeira. The AIDV Canada web site is located here: AIDV Canada. 

AIDV Canada's inaugural national conference on wine and liquor law will take place on February 24th during "wine festival week" in Vancouver. The conference will keep attendees up to date on recent developments including updates on national liquor policy, international trade, geographical indicators, and developments in case law. There will also be sessions on selling a BC winery, running a liquor agency/importer and issues arising at the intersection of liquor and cannabis licensing.

The conference fee is $250 for AIDV members and $325 for non-members. Registration and more information is available here: AIDV Canada Conference. 

InterProvincial Shipping Subscription Now Available

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Written by Mark Hicken Mark Hicken

Category: Latest News Latest News

Published: 21 October 2019 21 October 2019

If your winery or liquor business has been confused by the changes to Canada's interprovincial shipping laws over the last few months, we have good news for you. Our related (new) web site, Alca Intelligence, has just launched our Essential InterProvincial Shipping Compliance Subscription service, which will provide you with 12 months of critical legal information on interprovincial shipping including update notifications by email whenever there are any significant changes. The service provides immediate access to a detailed review of the current state of interprovincial shipping laws including an explanation of the recent federal changes. It also provides a complete summary of the relevant provincial laws including links to statutes, regulations and policies. Finally, there are also sample "terms of use" clauses for vendors to consider. The complete package should provide sufficient legal information for wineries (or other liquor businesses) to understand the current state of the law and to make their own decisions as to whether or not to ship to other provinces. 

We hope that this service will provide a more economical alternative to a legal opinion ... by providing essential legal information that will enable liquor businesses to make their own decisions at a more reasonable price point. More details on the Shipping Compliance Subscription and sign up is available here. Until October 31st, get 10% off the subscription by using the referral code SHIP2019 when you sign up.